Analyzing Investment Opportunities Requires Management Of Portfolio

1080 Words Apr 24th, 2016 5 Pages
Corporations and individuals cannot afford to invest in every potential opportunity that arises. One must analyze all the opportunities to ascertain which are most valuable. Analyzing investment opportunities requires management of portfolio, which involves a collection of investment tools, for instance, cash, bonds, mutual funds, shares, and stocks depending on the investor’s budget, income as well as convenient time frame. Portfolio management enables an investor to make informed decisions on strategy execution through operational activities and aligned programs. As a result, one chooses the projects and programs with the highest-priority using the necessary resources and oversight for success.
The Relationship between Risk and Rate of Return
Risk and rate of return are directly related. It follows that as the level of risk of an investment increases, its potential return goes up as well. This relationship is illustrated in the pyramid of investment risk illustrates whereby as one moves up the pyramid, they are susceptible to higher potential returns but with a greater risk of loss of principal. Moreover, the risk-free rate of an investment denotes the interest an individual would realize from an absolutely risk-free investment over a specified time.
Therefore, the risk-free rate provides the minimum return a financier would get from any investment since they would not accept more risk unless the risk-free rate is less than the potential rate of return. The expected return…

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